After Dunelm Group PLC's (LSE:DNLM) warned on profits last week, Deutsche Bank has lowered its price target from 1,360p to 1,200p but reiterated its 'buy' rating.
Shares in the retailer fell 20% after its profit warning revealed margins in the second quarter came under pressure as operating cost inflation outpaced like-for-like sales growth.
The outlook was further clouded by softer consumer sentiment, intense competition, and issues around stock availability and forecasting.
Analyst Benjamin Yokyong-Zoega said this reaction appeared “overdone” given it was just a 3% downgrade to consensus earnings and the underlying fundamentals.
He pointed to the new share price as offering an "appealing entry point to a cash compounder" offering an 8% free cash flow yield.
Despite the trading challenges, the analyst said expectations have now been reset.
Even amid near-term operational headwinds, he said: "We remain positive on Dunelm's proposition, strong own brand, broad pricing architecture and multichannel model."